A Decade of Decision

P> Ten years ago this month, as Washington Technology made its debut, Pentagon officials were projecting that the defense budget would double to more than $600 billion by the mid-'90s. Some of us in the defense industry thought such a figure was unrealistic. In fact, I predicted that defense spending would bottom out at about $250 billion around 1997. And at the time, I was criticized for lack of foresight.

It appears my projection was correct, albeit for many of the wrong reasons. In 1986, no one imagined the rapid disintegration of the Soviet Union and the onset of a crisis for the U.S. defense industry. Rather than thriving on a $600 billion Pentagon budget, equipping our armed forces for the Cold War and competing against the U.S.S.R. in space exploration, we have an industry with employment reduced by nearly half, a major U.S.-Russia joint venture in space and a future with outlines we can barely discern. We won the Cold War... but "winning the peace" is also a tough battle.


Technology companies here were hit especially hard. Not only were traditional defense companies witnessing the disappearance of this market, but as they sought to move into non-defense markets, the competitive nature of the environment was increased for all technology companies in the area.

The dilemma of America's defense industry was dramatized a couple of years ago when Defense Secretary Les Aspin invited a group of defense industry CEOs to dinner and said within five years, as many as two-thirds of the companies we represented no longer would be needed. Since that meeting, which I dubbed "The Last Supper," Aspin's successor, Secretary William Perry, has been equally candid.

They were saying the national interest would be best served by the consolidation of defense companies into a few, strong competitors. More specifically, the Pentagon expressed its desires to have two manufacturers of fighter planes instead of five, two manufacturers of satellites instead of five. In place of four producers of helicopters, two. Instead of three builders of bombers, one.

The facts confirmed that our industry had little choice. Since the Cold War ended, overall Defense Department spending has been cut by more than one-third, with an even more precipitous 70 percent slashing of procurement funding, which is the portion of the defense budget that fuels the aerospace/defense industry. Commercial aircraft sales also hit the skids in the late '80s and early '90s, and NASA's budget simultaneously went into a slow decline.

Subsequent downsizing has forced massive numbers of skilled, dedicated employees to lose their jobs -- ironically, the very people who helped "win" the Cold War. Our industry has lost more than 1.3 million jobs -- at one point, one job was lost every 30 seconds. And according to the Department of Commerce, we still have nearly a half million jobs to go before the bottom is reached. We have eliminated layers of management, shut down production lines and closed millions of square feet of facilities. Unfortunately, the prognosis is for still more belt-tightening.

These difficult times reinforce in me the wisdom handed down by one of our country's most esteemed philosophers -- Yogi Berra, who counseled, "When you come to a fork in the road, take it." Without hesitation -- or any joy -- our industry has followed his advice. We have set out on an unprecedented course of consolidating and downsizing. At the same time that we, as an industry, have become dramatically smaller, we have sought to preserve the muscle, vigor and technical expertise that long have made the aerospace/defense industry the backbone of our industrial economy and a guarantor of our national security.

What we are seeing is not just another passage through the doldrums of a cyclical industry. This is a true sea change -- a tectonic change. We will emerge with an industry that is not only smaller and more efficient, but hopefully one that still is able to serve the nation in its role as the worldwide peacekeeper. Instead of deterring one hostile superpower, we now are confronted with the more complex problem of containing -- or better yet -- deterring far-flung regional conflicts. Threats of the future will be more varied, changeable, unpredictable and dangerous as nuclear weapons find their way around the world. We need only consider the tensions in the Strait of Taiwan, on the Korean Peninsula, in Pakistan and India, Israel, Northern Ireland, Iran, Iraq, Libya and Russia to realize the continuing need for a vigorous U.S. defense.

The continued health of the aerospace/defense industry is as vital to the U.S. economy and technological leadership as it is to national defense. Even after the current downsizing, the aerospace industry remains the country's No. 1 exporter of manufactured goods, making a net contribution of more than $21 billion to the U.S. balance of payments with trading partners. The industry still provides jobs for about 2 million workers, among them some of the most skilled and motivated employees anywhere in the world. Another 4 million men and women are employed in "spin-off" jobs resulting from aerospace and defense manufacturing activity.

As difficult as the recent years have been, we now can see cause for guarded optimism. In scarcely more than half a decade, we passed from the beginning-of-the-end of the Cold War to the end-of-the-beginning of a new era of dynamism and challenge for our industry. Last year, U.S. commercial aircraft manufacturers recaptured the lion's share of the international airliner market. From a low point in 1993, sales by American manufacturers increased fivefold, soaring to 80 percent of 1995's worldwide orders for commercial transports. Aerospace Industries Association forecasts brighter prospects for 1996.

We also have seen a round of acquisitions by companies determined to become more competitive in an increasingly challenging environment. We can anticipate further consolidation along the lines of the Lockheed-Martin Marietta merger, the Northrop-Grumman merger, Lockheed Martin's strategic combination with Loral and Northrop Grumman's purchase of Westinghouse's defense business.

Slowly, we are building a more stable post-Cold War future. America's aerospace/defense industry will continue its role in underpinning much of the nation's technological and industrial leadership and has established itself alongside commercial technology companies as a serious competitor in many of the latter's markets. Nowhere has this been more evident than in the Washington, D.C., area. This relationship will persist as a critical component of America's competitiveness in world markets and of our standard of living at home for the next 10, 20, even 100 years. The modernized and energized, albeit smaller, industry emerging from the difficult challenges of the last decade will remain the bulwark of national security for future generations.


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